The U.S. has lost its perfect credit score, and here’s why it matters to your money. The downgrade reflects the government’s increasing debt due to spending significantly more than it earns, a trend with no immediate end in sight. This growing concern over U.S. debt, rather than tariffs, is causing market volatility, impacting your investments and the broader economy.   

Moody’s Ratings reduced the U.S. credit rating from its previous top-tier Aaa status to Aa1. This decision reflects Moody’s concerns about:

• The growing challenge of financing the federal budget deficit
• Increasing costs associated with refinancing existing government debt in the current high-interest-rate environment 
• Political gridlock 
• Translation the US Government got its less trustworthy with money    

Immediate Market Reaction

The downgrade triggered prompt reactions in financial markets:

• Bond prices fell significantly
• The 30-year U.S. Treasury yield climbed above the psychologically important 5% threshold
• The 10-year Treasury yield exceeded 4.5%

These yield movements are particularly significant as they occur during a period when the economy is already exhibiting stress signals related to President Donald Trump’s evolving tariff policies.   

Moody’s downgrade marks the end of an era where the agency stood alone in assigning the highest possible credit rating to U.S. sovereign debt. This decision now places the 116-year-old firm in agreement with Standard & Poor’s, which downgraded the U.S. in August 2011, and Fitch Ratings, which followed suit in August 2023.    

In the statement explaining their downgrade, Moody’s analysts highlighted a key concern: their expectation that the 2017 Tax Cuts and Jobs Act will be extended. They project this extension, their “base case” scenario, will increase the federal fiscal primary deficit (excluding interest payments) by approximately $4 trillion over the next ten years.   

Credit Rating Action Coincides With Congressional Tax Proposal

Moody’s downgrade of the United States’ credit rating comes at a significant moment in fiscal policy development. Congressional Republicans are currently advancing comprehensive tax reduction legislation that has drawn attention from economic analysts.

According to assessments from independent fiscal oversight organizations, the proposed tax cuts could potentially expand the federal budget deficit by several trillion dollars over the next ten years.

This timing creates a notable juxtaposition between Moody’s expressed concerns about deficit financing challenges and a legislative agenda that nonpartisan analysts project would further increase borrowing requirements.

Potential Consumer Impact

The rating change may affect consumers through various financial channels:

• Mortgage Rates: Treasury yields directly influence 30-year fixed mortgage rates, potentially making home loans more expensive
• Auto Financing: Car loans may see rate increases, though typically with less direct correlation
• Credit Cards: Variable-rate credit products could experience upward rate pressure

The interconnected nature of financial markets means that changes in government bond yields typically cascade through the broader lending ecosystem, ultimately affecting consumer borrowing costs.

What To Do Now  

• Watch interest rates 
• Track how the US Handles its debt 
• Be smart with cash flow and leverage 
• Understand how macro risk affects your business, investments and strategy